Preserving CBN’s Autonomy in National Interest

In this piece, James Emejo analyses the growing voices against the moves by the National Assembly to whittle down the powers of the Central Bank of Nigeria

The move by some members of the National Assembly to tweak the Central Bank of Nigeria (CBN) Act of 2007 so as to remove the bank’s Governor as Chairman of the Board of Directors, and to remove the power of the board to fix the bank’s budget, has continued to attract negative responses from analysts and members of the public.

Traditionally, and in other climes, and from time immemorial, central banks have enjoyed full autonomy because of their enormous responsibilities in stabilising not only the currency but also stimulating growth.

CBN Mandate

The CBN Act of 2007 saddles the bank with the overall control and administration of the monetary and financial sector policies of the federal government.

The objectives are to ensure monetary and price stability; issue legal tender in Nigeria; maintain external reserves to safeguard the international value of the legal tender; promote a sound financial system in Nigeria; and act as a banker and provide economic and financial advice to the federal government.

As a result, the apex bank is charged with the responsibility of administering the Banks and Other Financial Institutions (BOFI) Act (2020), otherwise known as BOFIA 2020 as amended, with the sole aim of ensuring high standards of banking practice and financial stability through its surveillance activities, as well as the promotion of an efficient payment system.

In addition to its core functions, CBN has over the years performed some major developmental functions, focused on all priority sectors of the Nigerian economy including financial, agricultural, and industrial sectors under its Development Finance arm.

To achieve its mandate, the bank is accorded both financial and operational, and administrative autonomy to ensure that it is free from any political interference.

This is because of the nature and peculiarity of its functions; the need to act fast to save any threat to financial stability among others.

In Nigeria, where bureaucracy and red tape are the order, especially in the public and political space, it is important to ensure that the CBN lives above these constraints to be able to save the economy as quickly as possible.

Analysts believed that it is largely because of the autonomy the bank enjoys that it is able to carry out critical interventions that salvaged the economy from collapsing and helped to quickly exit the recessions experienced in recent times.

Unarguably, the period of the COVID-19 pandemic, when major economies of the world were brought to their knees – was the period that the versatility of the CBN which was allowed by the full autonomy it enjoys came into play as the bank did not have to wait for long approvals in order wade into action to save the economy and bring succour to Nigerians.  The positive impact of that swift intervention is currently being felt in the country today.

CBN as Model for Other Regional Central Banks

It is important to note that the good works of the CBN, which is mainly a result of the autonomy it enjoys have garnered accolades from within and abroad.

Variously, other central banks and financial regulatory institutions in the African region have often sent delegations to Nigeria to understudy the fact behind the apex bank’s successes.

In 2021, a delegation from the Central Bank of the Gambia (CBG), led by its governor, Mr. Buah Saidy visit the CBN to seal a currency printing deal. The CBN was to print The Gambia’s currency.

During the visit, Saidy sought to benefit from the CBN’s vast experiences on how it had successfully regulated the financial system and asked for assistance in the areas of information technology, modernisation, cyber security, forex shipping, and management, among others.

He also said he was having a difficult time regulating the banks in The Gambia, especially in the areas of meting out sanctions to erring financial institutions.

He had further sought to know the magic which the CBN had adopted to sanction banks’ executives without repercussions.

Legislature as Critical for Financial Stability

No doubt, the National Assembly has no doubt played a key role in ensuring the full autonomy of the CBN over the years, thus contributing to financial stability and economic growth through legislative support.

This is why analysts also believed that the hard-earned efforts of the National Assembly in preserving the financial and banking system should not be upturned overnight.

The CBN Governor, Mr. Godwin Emefiele had on several occasions attested to the support of the lawmakers in entrenching good governance at the apex bank.

In his responses to Saidy, Emefiele attributed the successes to the support which the apex bank had enjoyed from the National Assembly.

He said: “On the issue of CBN independence, I thank you for the kind words. But I think the point is that we thank our own parliament. Our parliament has been extremely supportive of the CBN.

“They put in place a central bank Act that grants independence to the CBN and we have our Banks and Other Financial Institutions Act that also grants a lot of power and authority for the CBN to bite when we find people who want to take advantage of the system for their own personal benefit and we don’t breed any nonsense about people who try to take advantage of our system for their personal benefits.

“Everything must be done keeping in mind the overall national goals and objectives and that is why the CBN will act very fast on any economic agent that tries to undermine our policies and that’s why we are very firm on them.”

He said: “Working with your parliamentary I believe you can have laws that can give you the kind of independence that you need in any, practically most of the central banks in the world today have the independence that gives them the power to be able to manage monetary policy in a way that is beneficial to their countries and economy.”

Tampering with Autonomy Destructive, Say Analysts

However, in separate interviews with THISDAY, analysts have vehemently opposed the latest moves by the lawmakers to tamper with the CBN Act, citing dire implications for the banking and financial system, as well as the economy in general.

A former Deputy Governor of the CBN, Dr. Kingsley Moghalu, warned that current efforts by the National Assembly to pass a bill removing the apex bank Governor as Chairman of the Board of Directors of the bank, and to remove the power of the board to fix the bank’s budget is “completely wrongheaded and should be dropped”.

He said such amendment to the CBN Act of 2007, which also seeks to set the salaries of its staff would finally destroy the apex banking industry regulatory institution by disrobing it completely of its institutional independence as enshrined in the Act.

Moghalu added that the development if allowed will make the CBN a “statutory corporation under the law, to become a ministry or a mere agency or department of the government”, stressing that it will also “render the bank an open playground for politicians who are the custodians of our dysfunctional governance”.

He contended that there are good reasons why the governor of the bank is the Chairman of its Board of Directors.

He said: “This is the case in most central banks around the world. This framework protects central banks from external interference. A central bank’s policies and its internal administration should objectively advance the interest of the national economy, not the partisan agendas of political parties or individuals.

Moghalu also said that it is part of the required independence that the CBN creates its own budget and sets its staff pay, adding that it is no accident that the central bank is arguably the top repository of public sector talent in the country.

He said: “This is because of massive investments by the bank in staff development, coupled with high standards of recruitment.”

The former deputy governor of the bank further stressed that though the CBN should be accountable, “let’s not throw the baby away with the bath water.”

He added: “The CBN Act already requires the bank to periodically brief the National Assembly on its operations. The President of Nigeria approves and signs the bank’s Annual Reports and in addition, is empowered to approve any change to the legal tender and any investment by the bank outside Nigeria.

“What needs to be done is to make these accountabilities effective, not to gut one of the most unique and important institutions in any country, the unique nature of which requires its independence in order to work effectively for the government and the citizens.”

Managing Director/Chief Executive, Dignity Finance and Investment Limited, Dr. Chijioke Ekechukwu, said the autonomy of the central bank should remain sacrosanct and absolute.

He said: “The CBN plays many roles in managing the monetary policy of our country and other major ancillary regulatory roles. Imagine if the CBN will have to bring its budget to the National Assembly, and defend same, awaiting approval, compromises will obviously become inevitable.

“However, it will be necessary that a strong and independent board of technocrats perform oversight on the apex bank, to ensure that corporate governance is taken very seriously for purposes of accountability and discipline.”

Also, Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, said central banks globally operate with autonomy in order to be devoid of political interference.

According to him, the apex bank provides countermeasures including monetary policy, and fiscal policy in order to stabilise the economy. He noted that given the need to be dynamic and reactive, impinging on its autonomy is “certainly going to hamper its ability to affect the economy if it loses its powers of autonomy.”

He said: “In Nigeria, this is purely a political reaction that does not augur well in the long run. With the already fragile economy, massive capital flight, and general investor apathy towards Nigeria, this move will further dampen investor confidence.

“Typically, political decisions are often cumbersome and bureaucratic and in a dynamic global economy that requires fast decision-making to address economic imbalances, this purported move will be disastrous.”

On his part, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, advised that the autonomy of the apex bank should not be tampered with as this would whittle down its powers to efficiently regulate the economy through the banking sector.

He said central banks all over the world enjoy autonomy to ensure they make a sound economic judgments without recourse to political leanings.

Gbolade said: “If the autonomy of the apex bank is compromised, it would lead to loss of investors’ confidence and apathy in the economy. The danger of leaving the economy to politicians instead of technocrats is that they end up taking decisions to benefit their constituents without regard for sound economic judgment.

“In recent times, the Governor of the apex bank has not distanced himself from politics however the sanctity of the institution should not be compromised because of the actions of the governor.  Nigeria should begin to build enduring institutions instead of building men.”